Occupational attainment and stratification in China: The interactive effects of social networks and the hukou system

• Author: Lu Liu,Zhongda Li,Jianhao Lin
• Published date: 01 August 2020
• DOI: http://doi.org/10.1111/rode.12673
• Date: 01 August 2020

Rev Dev Econ. 2020;24:1167–1192. wileyonlinelibrary.com/journal/rode

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1167

© 2020 John Wiley & Sons Ltd

Received: 23 April 2018

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Revised: 23 March 2019

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Accepted: 15 November 2019

DOI: 10.1111/rode.12673

REGULAR ARTICLE

Occupational attainment and stratification in

China: The interactive effects of social networks and

the hukou system

ZhongdaLi1

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JianhaoLin2

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LuLiu3

1Department of Economics, Jinan

University, Guangzhou, China

2Department of Economics, Lingnan

College, Sun Yat-sen University,

Guangzhou, China

3School of Economics, Shanghai University

of Finance and Economics, Shanghai,

China

Correspondence

Lu Liu, School of Economics, Shanghai

University of Finance and Economics,

No. 777, Guoding Road, Yangpu District,

Shanghai 200433, China.

Email: luliu.econ@gmail.com

Funding information

National Natural Science Foundation

of China, Grant/Award Number:

71703057; Guangdong Basic and Applied

Basic Research Foundation, Grant/

Award Number: 2020A1515011481;

Fundamental Research Funds for the

Central Universities, Grant/Award Number:

19JNQM13

Abstract

This paper examines the effects of social networks and

hukou status on worker’s occupational attainment in China.

To identify the potential ranking of different occupations,

we consider the use of the stereotype ordered regression

model to estimate individual occupational choice. Our re-

sults show that social networks play different roles in shap-

ing occupational outcomes for urban and rural workers. In

particular, friendship ties significantly improve urban work-

ers’ opportunities in obtaining higher-ranked occupations;

in contrast, kinship ties appear to be more influential for

rural migrants, but the effects are limited to the attainment

of lower-ranked occupations. While social contacts from

government organizations or state-owned sectors facilitate

urban workers’ attainment of higher-ranked occupations,

similar patterns are not observed among rural workers. We

further find that the beneficial effects of social networks

or urban hukou identity are stronger for workers who are

from less-developed regions, who work in state-owned en-

terprises, or who have a college degree. Decomposition of

the wage gap between urban and rural workers suggests that

differences in social networks and occupation types, to-

gether with hukou discrimination, account for the majority

of the current wage inequality.

KEYWORDS

hukou status, occupational attainment, occupational ranks; social

networks

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LI et aL.

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INTRODUCTION

Since 1978’s reform and opening-up policy, China has experienced substantial changes in labor al-

location along with the transition of economic system. During the Maoist era, the distribution of

occupations was primarily determined by the executive power and administrative controls (Friedman

& Lee, 2010). Under the planning system, the rigid allocation mechanism featured by egalitarian prin-

ciple provided relatively equal occupational opportunities for workers. As the market-oriented reform

deepened, a competitive labor market had gradually emerged where human capital had been playing

an increasingly central role in individual occupational attainment. However, the process of the market

reform was uneven. In this period, the occupational attainment mechanism was distorted by various

forms of labor market imperfections, among which information asymmetry and urban-rural segrega-

tion acted as two main driving forces.

In contemporary China, inequality in occupational attainment can be largely attributed to the

guanxi culture. As the major carrier of individual social networks resources, guanxi, in the Chinese

context, represents strong ties of high intimacy and favor exchanges (Huang & Bian, 2015). Due to

labor market failures and the specific Chinese tradition, the use of guanxi networks has been prevail-

ing in the job search process. On the one hand, guanxi networks serve as a critical complement to

formal labor market institutions, greatly mitigating the information asymmetries between job seekers

and employers. On the other hand, however, the overreliance on guanxi results in severe inequality

in occupational attainment. In the emerging labor market, the lack of comprehensive laws and regu-

lations enables job seekers to take advantage of their social resources in competing for job opportu-

nities. Typically, social connections facilitate workers’ occupational attainment by providing favor or

exerting influence on the employment process. One undesirable consequence is that workers endowed

with less social capital are at a disadvantage in the labor market. A large and still-growing literature

has demonstrated the importance of social ties on one’s occupational outcomes, and such influential

relationship has essential implications for China’s labor market inequalities (Bian, 1997, 1999; Bian

& Huang, 2009; Gee, Jones, & Burke, 2017; Granovetter, 1973, 1974, 1995; Huang, 2008; Lin, 1999;

Lin, Ensel, & Vaughn, 1981; Mouw, 2003; Zhang & Li, 2003). For example, based on in-depth in-

terviews with 65 job searchers, Huang (2008) shows that the beneficial effects of social networks are

most pronounced in searching for jobs in state-owned sectors, especially for highly desirable positions

or soft-skilled occupations. Huang and Bian (2015) use data from a large-scale survey conducted in

eight Chinese cities to study the job search networks and wage attainment. They find strong evidence

that social ties and network resources are positively associated with entry-level wages, and the effects

are more significant in less-institutionalized sectors.

Another important factor contributing to the unequal occupational attainment is the urban-rural

labor market segmentation. This dual structure has its root in China’s household registration (also

known as hukou) system, which aims at controlling the migration between urban and rural regions.

The household registration system is a historical product of China’s early development strategies. In

the course of capital accumulation and rapid industrialization, China has adopted the price scissors

policy that was designed to drive down the food prices and raise the industrial product prices. As part

of the policy, urban workers are legally entitled to a wide range of state-sponsored welfare benefits,

such as housing, education for children, health care, pensions, and other social insurances, leading to

significantly higher real income of urban workers and attracting massive migration of people from

JEL CLASSIFICATION

J24; J62